1 in 2 Aussies would sell assets or rely on family to pay mortgage, if unable to work
New research reveals that more than half (55%) of Australian mortgage holders would need to sell their assets or rely on the welfare of family or friends if a critical illness prevented them from working, or if they were unemployed for three months or longer.
The research – a survey of a nationally representative sample of 1000 Australian adults – was conducted by an independent research agency1 and commissioned by ALI Group, Australia’s only provider of loan protection products for Australian mortgage holders.
The findings follow results of ALI Group research released last month that revealed more than half (56%) of Australians rank job security or serious illness as their number one concern among factors that could prevent them from paying off their home loans.
The new survey results reveal that, in the case of serious illness or job redundancy, one in three (32%) survey respondents would sell an asset such as their home or an investment property. A quarter of respondents (23%) would rely on family or friends for financial assistance.
Under 30s are most likely to rely on family and friends for support, at 34 per cent of 30-something respondents admitting to potentially doing so.
West Australians would most likely sell an asset (43% of WA respondents) and rely on family and friends (32% of respondents).
Between the genders, 59 per cent of females would rely on their partner’s income if a critical illness prevented them from working, or if they were unemployed for more than three months, compared with 49 per cent of males. Only 33 per cent of respondents admitted they would fall back on an insurance policy. While 31 per cent would look to their super-held life insurance to help them if a critical illness prevented them from working or if they were made redundant in their jobs, another 30 per cent of Australians have no form of insurance to cover their income in the case of critical illness or redundancy.
Huy Truong, CEO of ALI Group, says: “Australians do not fully understand the vulnerable financial situation their mortgage puts them in. Serious illness or redundancy can happen at any time and many people don’t realise that their superannuation-held life insurance does not adequately protect their income in the case of illness or redundancy. You may only receive $100,000 or $200,000 in cover from your superannuation and while this might seem like a lot on paper, the reality is that if you are a homeowner with a family, you’ll actually need cover in the $500,000-$1 million+ price bracket.
“The survey further asked whether respondents had ever seen a financial planner, and 64 per cent had not, and therefore I do not believe they have a plan for such events.”
Thirty per cent of respondents did not have a life insurance policy. Of these, 41 per cent believe they didn’t need the cover while 27 per cent of them think it is too expensive.
According to Zurich and Oxford University research, up to 18 million Australians aren’t insured against premature death, serious illness or disability2 yet an independent survey commissioned by ALI Group revealed that one in two (48%) Australian mortgage holders worry about being diagnosed with a serious illness at some stage in their lives.
“Australia is one of the most underinsured countries in the world. So many of us follow a ‘she’ll be right’ mentality and feel comfortable just having health insurance, but neither of these are the answer for major illness or injury. We are not taking enough consideration for our own health and I truly believe we will soon face a crisis given house prices are increasing and most home borrowers are living pay cheque to pay cheque – a recipe for disaster,” says Huy.
According to Moody’s Global Credit Research, the proportion of Australian residential mortgages that are more than 30 days in arrears (30+ delinquency rate) rose to the highest level in three years as of 31 May 2016, and is expected to climb further. Mortgage performance deteriorated in all eight Australian states and territories over the year to 31 May 2016, reaching 1.5 per cent from 1.34 per cent at 31 May 2015, with Western Australia faring the worst3.
Further data supports this, with Standard and Poor’s Performance Index revealing Australian residential mortgage-backed securities (RMBS) transactions more than 30 days in arrears increased to 1.19 per cent over the three months to June, up from 1.13 per cent. Western Australia was home to the highest level of arrears at 1.95 per cent, followed by Tasmania (1.62%) and South Australia (1.56%)4.
ALI Group’s loan protection product is underwritten by Hanover Life Re of Australasia Ltd ABN 37 062 395 484 (Death and Terminal Illness and Living Benefit) and QBE Insurance (Australia) Limited ABN 78 003 191 035 AFSL 239545 (Involuntary Unemployment Benefit). For more information, visit aligroup.com.au. Australian Life Insurance Distribution Pty Ltd ABN 31 103 157 811 AFSL 226403.
1 Pureprofile survey of 1000 employed Australian mortgage holders conducted in November 2016
2 2016 income protection gap report, Zurich and Oxford University, 2016: https://www.zurich.com.au/content/dam/au-documents/news/income-protection-gaps-challenge-and-opportunity.pdf
3 Moody’s Global Credit Research, 2016: https://www.moodys.com/research/Moodys-Australian-mortgage-arrears-will-continue-to-rise-from-three--PR_356659
4 Standard and Poor’s Performance Index – June quarter, 2016: http://www.securitisation.com.au/marketsnapshot#RMBS